Private lenders’ demand for audit


Science, specific knowledge, and total quality management



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Science, specific knowledge, and total quality management

Wruck, Karen Hopper, Jensen, Michael C.

Vol 18, Issue 3, 247-287 (1994)

We analyze Total Quality Management (TQM) from an economic and organizational perspective. We find that TQM is a new organizing technology that is science-based, non-hierarchical, and non-market-oriented. It improves productivity by encouraging the use of science in decision-making and discouraging counter-productive defensive behavior. It also encourages effective creation and use of specific knowledge throughout the organization. Effective implementation of TQM generally requires major changes in all three components of the organizational rules of the game, namely systems for allocating decision rights, performance measurement systems, and reward and punishment systems. [ABSTRACT FROM AUTHOR]

Stock-based incentives and investment decisions

Wruck, Karen Hopper

Vol 16, Issue 1-3, 373-380 (1993)

Bizjak, Brickley, and Coles (1993) study how asymmetric information affects investment decisions when firms use stock-based compensation. A model is developed where suboptimal investment results from compensation plans overemphasizing current stock return. Empirical results show that companies with higher information asymmetries have CEO compensation emphasizing equity ownership relative to salary and bonus incentives. Surprisingly, they also show that CEO compensation in firms with higher information asymmetries is more weakly associated with stock performance than compensation in lower asymmetry firms. In my comments, I identify concerns about the model, the empirical tests, and the relation between the two. [ABSTRACT FROM AUTHOR]

Political Costs and an Intraperiod Accounting Choice for Export Tax Credits

Wong, Jilnaught

Vol 10, Issue 1, 37-51 (1988)

This study examines the effects of political and debt contracting costs on an intraperiod accounting choice Export tax credits that New Zealand companies receive may be credited to sales or to income tax expense Compared to the credit to sales method, the tax reduction method reduces a company's reported tax rate and interest coverage ratio, both of which could have adverse economic consequences The results indicate the credit to sales method is preferred by large companies that attract political scrutiny because of their low tax rates The level of a firm's interest coverage is also related to that accounting choice [ABSTRACT FROM AUTHOR]

Economic Incentives for the Voluntary Disclosure of Current Cost Financial Statements

Wong, Jilnaught

Vol 10, Issue 2, 151-167 (1988)

This study examines why some New Zealand listed companies voluntarily present current cost financial statements The results suggest that tax and political cost considerations are influential in the voluntary disclosure of current cost reformation [ABSTRACT FROM AUTHOR]

Contracting cost determinants of GAAP for joint ventures in an unregulated environment

Whittred, Greg, Zimmer, Ian

Vol 17, Issue 1/2, 95-111 (1994)

As in other countries, Australian accounting for unincorporated joint ventures varies systematically between firms in different phases in the extractive industries (explorer vs. producer). We argue that these differences in accounting method can be explained by differences in the type of assets and the manner in which they are owned and financed. We hypothesize that when unincorporated joint ventures are financed on a with-recourse basis they will be proportionately consolidated; when they are financed on a non-recourse basis one-line reporting is expected. Empirical results are consistent with this hypothesis and appear to generalize to the real estate industry. [ABSTRACT FROM AUTHOR]

The Derived Demand for Consolidated Financial Reporting

Whittred, Greg

Vol 9, Issue 3, 259-285 (1987)

Investigates the economic incentives of management of Australian corporations. Adoption of consolidated form of financial reporting; Evolution of consolidated financial reporting; Option of firms to use income reducing accounting techniques.

Anticipation of Quarterly Earnings Announcements

Whaley, Robert E., Cheung, Joseph K.

Vol 4, Issue 2, 57-83 (1982)

Evaluates the efficiency of the Chicago Board Options Exchange in Illinois. Examination of option price behavior; Analysis of a first-order autoregressive seasonal process; Incorporation of the information content of an earnings announcement.

Corporate governance and hostile takeovers

Weisbach, Michael S.

Vol 16, Issue 1-3, 199-208 (1993)

In the preceding paper Shivdasani (1993) estimates equations predicting the probability of a hostile takeover as a function of governance characteristics. He finds that additional outside directorships by board members decrease the probability of a takeover. Ownership by management and by affiliated blockholders also decreases the probability of a takeover, while ownership by unaffiliated blockholders increases this probability. These results suggest that corporate governance affects takeover probabilities through two channels: (1) suboptimal contracting within a firm can lead to poor corporate performance and hence affect the desirability of a takeover, and (2) governance structures can alter the cost of a takeover and hence affect the takeover process. [ABSTRACT FROM AUTHOR]

Editorial

Watts, Ross L., Zimmerman, Jerold L.

Vol 1, Issue 1, 1-2 (1979)

The article discusses the editorial policy of the "Journal of Accounting and Economics." The periodical seeks to publish the highest quality manuscripts explaining accounting phenomena through economic theories, public choice, government regulation, agency theory and financial economics. Details of the qualifications of the papers that will be published within the periodical are presented. The article also identifies the strategy of the editorial board in order to stimulate accounting research.

On the Irrelevance of Replacement Cost Disclosures for Security Prices

Watts, Ross L., Zimmerman, Jerold L.

Vol 2, Issue 2, 95-106 (1980)

Focuses on the irrelevance of replacement cost disclosures for security prices. Need for replacement cost information; Benefits of replacement cost disclosure; Examination of security price behavior.

Commemorating the 25th Volume of the Journal of Accounting and Economics

Watts, Ross L.

Vol 25, Issue 3, 217-233 (1998)

This special issue commemorates the 25th volume of the "Journal of Accounting and Economics" (JAE). The published papers all clearly met the periodical's normal standards for publication. The motivation in calling for innovative papers for publication in a special issue and establishing the prize was to encourage young accounting researchers to innovate. This editorial explores various hypotheses as to why 50 of 56 submitted papers were not judged by the referees to be innovative and publishable and why the six publishable papers did not meet the higher standard for award of the prize. Evidence on the impact of papers published in the JAE in the period 1983-1996 is used to assess the hypotheses and to predict where innovation is likely to be most productive. The types of research papers submitted to the special issue were compared to the distribution of papers published in the JAE from 1983-1996.

STOCK MARKET REACTION TO MANAGEMENT INCENTIVES PLAN ADOPTION An Overview

Warner, Jerold B.

Vol 7, Issue 1/2/3, 145-149 (1985)

Focuses on the adoption of management incentives plan in the United States. Influence of the plan on stock market reaction; Attributions on stock price to tax effects; Emergence of increase corporate capital investment with the adoption of the plan.

Managerial ownership, accounting choices, and informativeness of earnings

Warfield, Terry D., Wild, John J., Wild, Kenneth L.

Vol 20, Issue 1, 61-91 (1995)

This article hypothesizes that the level of managerial ownership affects both the informativeness of earnings and the magnitude of discretionary accounting accrual adjustments. The hypothesis draws on the theory of the firm, and exploits: (1) separation of ownership from control of economic decisions, (2) the extent and consequences of accounting-based contractual constraints, and (3) managers' incentives in selecting and applying accounting techniques. Results show managerial ownership is positively associated with earnings' explanatory power for returns and inversely related to the magnitude of accounting accrual adjustments. Moreover, ownership is less important for regulated corporations, suggesting regulation monitors managers' accounting choices. [ABSTRACT FROM AUTHOR]

Adopting residual income-based compensation plans: Do you get what you pay for?

Wallace, James S.

Vol 24, Issue 3, 275-300 (1997)

Managers, consultants, and the financial press assert that compensation plans based on residual income change managers' behavior. This assertion is empirically tested by selecting a sample of firms that began using a residual income performance measure in their compensation plans and comparing their performance to a control sample of firms that continue to use traditional accounting earnings-based incentives. The results generally support the adage 'you get what you measure and reward'. The results also support many hypothesized managerial actions associated with residual income-based performance measure incentives. [ABSTRACT FROM AUTHOR]

Optimal Tax Depreciation

Wakeman, Lee Macdonald

Vol 2, Issue 3, 213-237 (1980)

Evaluates the choice of depreciation methods for tax purposes in the United States. Presentation of a capital budgeting technique; Derivation of optimal regular depreciation method under the tax code; Determination of optimal depreciable life for short-lived assets.

Voluntary Disclosure with a Strategic Opponent

Wagenhofer, Alfred

Vol 12, Issue 4, 341-363 (1990)

This paper analyzes voluntary disclosure strategies of a privately reformed firm when the information is relevant for the market price of the firm and also for an opponent Favorable information increases the market price but might reduce the opponent to take a discrete action that imposes proprietary costs on the firm It is shown that there is always a full-disclosure equilibrium There can exist partial-disclosure equilibria with two nondisclosure intervals Comparative statics show some counter-intuitive results eg, higher proprietary costs or higher risk of an adverse action can make disclosure of favorable information more or less likely [ABSTRACT FROM AUTHOR]

The information content of funds from operations (FFO) for real estate investment trusts (REITs)

Vincent, Linda

Vol 26, Issue 1-3, 69-104 (1999)

This paper examines the information content of alternative summary performance measures, using stock returns as the benchmark, for 138 REITs during 1994-1996. This paper tests for both incremental and relative information content of FFO (a voluntarily disclosed, accounting-based performance measure that is the industry standard for REITs) compared to GAAP net income (EPS), cash from operations, and earnings before interest, taxes, depreciation and amortization. Results indicate that both FFO and EPS consistently provide incremental information content with only weak evidence that EPS has greater relative information content and no evidence for the other summary performance measures. [ABSTRACT FROM AUTHOR]

Communication and delegation in collusive agencies

Villadsen, Bente

Vol 19, Issue 2/3, 315-344 (1995)

Collusion may benefit an organization if the employees, by sharing effort, information, or risk, can enhance production or lower costs. Collusion is detrimental if it leads to less effort or to withholding of information. A contract that utilizes the agents' cooperative behavior dictates less relative performance evaluation than does a noncooperative contract or a contract that ensures the employees do not cooperate. Delegation of decision authority is beneficial for a broader range of organizations if employees collude than if they do not. The constructed contracts are incentive compatible for coalitions as well as for individuals. [ABSTRACT FROM AUTHOR]

On the Theory of Market Information Efficiency

Verrecchia, Robert E.

Vol 1, Issue 1, 77-90 (1979)

Analyzes the theory of market information efficiency. Influence of traders' beliefs on the variation of security price; Expansion of number of traders participating in the market; Implications for the accounting.

The Rapidity of Price Adjustments to Information

Verrecchia, Robert E.

Vol 2, Issue 1, 63-92 (1980)

Analyzes the relationship between the rapidity of price adjustments and information accuracy. Use of equilibrium strategy to determine the level of investment in information processing; Analysis on the theory of price adjustments rapidity in securities market; Development of theoretical models of market equilibria.

Discretionary Disclosure

Verrecchia, Robert E.

Vol 5, Issue 3, 179-194 (1983)

Shows the existence of disclosure-related costs in relation to managerial exercises. Motivations of managers to withhold reports; Range of possible interpretations of withheld information; Inability of traders to interpret withheld information.

Managerial Discretion in the Choice among Financial Reporting Alternatives

Verrecchia, Robert E.

Vol 8, Issue 3, 175-195 (1986)

Focuses on the role of agents in the choice among financial reporting alternatives in the United States. Relation between the extent to which the principal allows managerial discretion and the improvement in the profits; Details of the approved actions of an agent; Advantages of managerial discretion in optimal compensation contract with a rational principal.

Endogenous Proprietary Costs through Firm Interdependence

Verrecchia, Robert E.

Vol 12, Issue 1-3, 245-250 (1990)

In the preceding paper Darrough and Stoughton suggest that firm interdependence, modelled as an entry game among firms in a product market, can yield endogenous proprietary costs This allows the costs associated with the dissemination of information about the firm to depend upon the information's content in some direct way My comments focus on first, the structure of the game, which emphasizes the potential for full disclosure, second, the extent to which the entry game exaggerates the usefulness of 'bad news', and third, their suggestion that more competition among firms implies more, and not less disclosure, an observation seemingly contrary to Verrecchia (1983) [ABSTRACT FROM AUTHOR]

Information Quality and Discretionary Disclosure

Verrecchia, Robert E.

Vol 12, Issue 4, 365-380 (1990)

Using the model of discretionary disclosure suggested in Verrecchia (1983), I show that an increase m the quality of private information received by a manager results in more disclosure on his part I also discuss how this result influences a manager's choice over levels of quality. [ABSTRACT FROM AUTHOR]

Disclosure and the cost of capital: A discussion

Verrecchia, Robert E.

Vol 26, Issue 1-3, 271-283 (1999)

In this discussion I comment on the contribution of two papers toward our understanding of how disclosure affects the cost of capital. Specifically, in the context of these papers, I comment on whether disclosure ameliorates or exacerbates the cost of capital that arises from the existence of information asymmetries in capital markets. This is a notion that should be of fundamental interest in that it provides an economic basis for evaluating the costs and benefits of accounting information. [ABSTRACT FROM AUTHOR]

Value-relevance of banks' derivatives disclosures

Venkatachalam, Mohan

Vol 22, Issue 1-3, 327-355 (1996)

This paper investigates the value-relevance of banks' derivatives disclosures provided under SFAS 119. The findings suggest that the fair value estimates for derivatives help explain cross-sectional variation in bank share prices and that the fair values have incremental explanatory power over and above notional amounts of derivatives. I also conduct cross-sectional tests to provide preliminary evidence on the usefulness of derivatives disclosures in examining banks' risk-management strategies. While I find that banks, on average, are reducing their risk exposures using derivatives, further analysis reveals that only 47% of the sample banks appear to use derivatives to reduce risk. [ABSTRACT FROM AUTHOR]

Are 20-F reconciliations between IAS and US-GAAP value-relevant? A discussion

Venkatachalam, Mohan

Vol 26, Issue 1-3, 313-318 (1999)

Harris and Muller (1998) present some interesting evidence on the market valuation of accounting numbers under IAS and US-GAAP. I view this evidence as a first step in contributing to the debate on whether foreign firms following IAS should be allowed to list in the US without providing 20-F reconciliations. In my discussion, I evaluate the contribution and limitations of the study and suggest some extensions. [ABSTRACT FROM AUTHOR]

A model of negotiated transfer pricing

Vaysman, Igor

Vol 25, Issue 3, 349-384 (1998)

A large majority of firms employ negotiated transfer pricing, yet this method of decentralization remains largely unexplored. This study develops a model of negotiated transfer pricing incorporating private divisional information, as this is the setting where decentralization is most compelling. The firm designs a compensation system utilizing divisional performance evaluation and negotiated transfer pricing. A dynamic bargaining model is employed to capture managerial negotiations. The study demonstrates that the firm can design managerial-compensation schemes and bargaining infrastructures so that the negotiated transfer-pricing structure allows it to reach the upper bound on available profits. [ABSTRACT FROM AUTHOR]

Institutional ownership, differential predisclosure precision and trading volume at announcement dates

Utama, Siddharta, Cready, William M.

Vol 24, Issue 2, 129-150 (1997)

This study examines the relation between ownership structure, as revealed by the percentage of outstanding shares held by institutional investors, and trading volume at earnings announcement dates. We find that volume response as a function of institutional ownership is quadratic with the quadratic curve that reaches a maximum at around 50% institutional ownership. When risk tolerances are identical across investor types such a relation is consistent with Kim and Verrecchia's (1991a) proposition that trading volume response to public announcements increases with the level of cross-investor variation in precision of private predisclosure information. [ABSTRACT FROM AUTHOR]

Why Do Managers Voluntarily Release Earnings Forecasts?

Trueman, Brett

Vol 8, Issue 1, 53-71 (1986)

Examines the reasons for managers to voluntarily release earnings forecasts. Control of managers on production decisions; Assessment of the manager's ability to anticipate economic environment changes; Adjustment of production plans.

Theories of Earnings-Announcement Timing

Trueman, Brett

Vol 13, Issue 3, 285-301 (1990)

Recent empirical research has found that when a firm releases its earnings report earlier than expected, its stock price rises, on average, while if the report is late, ItS stock price declines. The analysis here focuses on two alternative explanations for these findings, each based on the premise that some firms with unfavorable earnings increase their reported income through earnings management. In one case earnings management necessitates a reporting delay, while m the other a delay is caused by the manager's desire to first observe other firms' earnings Both cases lead to market reactions consistent with the empirical findings. [ABSTRACT FROM AUTHOR]

Information Quality and the Valuation of New Issues

Titman, Sheridan, Trueman, Brett

Vol 8, Issue 2, 159-172 (1986)

Investigates the value of the firm as reflected by the auditor and investment banker quality. Determinant of the price of an initial public offering; Implication of an entrepreneur with favorable information on the firm value; Significance of the value of a firm.

A test of the market's mispricing of domestic and foreign earnings

Thomas, Wayne B.

Vol 28, Issue 3, 243-267 (1999)

This study investigates whether abnormal returns can be earned using public information about firms' domestic and foreign earnings. The results indicate that the market understates foreign earnings' persistence. As a result, it is possible to construct a zero investment hedge portfolio that consistently earns positive returns across years. A disproportionate fraction of the positive abnormal returns to the long position is concentrated in the few days surrounding the subsequent year's quarterly earnings announcement dates. Furthermore, the abnormal returns do not appear to persist beyond the subsequent year. The results are consistent with market mispricing, and not mis-estimated risk. [ABSTRACT FROM AUTHOR]

Corporate Taxes and Defined Benefit Pension Plans

Thomas, Jacob K.

Vol 10, Issue 3, 199-237 (1988)

The Tepper--Black arguments for tax-arbitrage opportunities from overfunding pension plans are critically examined and modifications proposed Tax status, a function of current marginal tax rates and expected future taxable income, is predicted to determine funding policy Tests of tins modified tax benefits view suggest that 1) tax status declines are associated with pension contribution reductions, 2) reductions in contributions are related to previous excess contributions as well as non-pension tax shield increases causing the decline in tax status and 3) cross-sectionally, tax status is related to fund levels, choice of actuarial variables, and the use of defined benefit plans [ABSTRACT FROM AUTHOR]

Why Do Firms Terminate Their Overfunded Pension Plans?

Thomas, Jacob K.

Vol 11, Issue 4, 361-398 (1989)

Financial and pension variables are analyzed to test predictions of a number of explanations for the recent surge m reversions of excess assets from terminations of overfunded pension plans Terminations are apparently motivated by cash needs, rather than tax, accounting, or wealth transfer considerations These cash needs arise from large unexpected declines in funds from operations or financial restructuring subsequent to hostile takeover attempts However, terminations appear to be a costly source of funds, since firms seek funds from numerous other sources (dividend cuts. 'slow' withdrawals of pension assets, and investment cuts) before resorting to terminations [ABSTRACT FROM AUTHOR]

Market Reaction to Short-Term Executive Compensation Plan Adoption

Tehranian, Hassan, Waegelein, James F.

Vol 7, Issue 1/2/3, 131-144 (1985)

Focuses on the adoption of short-term executive compensation plan in the United States. Examination of the stock price reaction; Correlation between short-term bonus plans adoption and advertising conditions; Concerns on the advertising expenditures from short-term compensation plans.



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